Revisiting Shiller’s excess volatility hypothesis

Dooruj Rambaccussing

No 287, Dundee Discussion Papers in Economics from Economic Studies, University of Dundee

Abstract: One of the cornerstone of financial anomalies is that there exists money making opportunities. Shiller’s excess volatility theory is re-investigated from the perspective of a trading strategy where the present value is computed using a series of simple econometric models to forecast the present value. The results show that the excess volatility may not be exploited given the data available until time t. However, when learning is introduced empirically, the simple trading strategy may offer profits, but which are likely to disappear once transaction costs are considered.

Keywords: Present Value; Excess Volatility (search for similar items in EconPapers)
JEL-codes: G12 G14 G17 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2015-02
New Economics Papers: this item is included in nep-his and nep-mst
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